Pensions and Estate Planning: What Happens to Your Retirement Savings

Pensions and Estate Planning: What Happens to Your Retirement Savings

There are several types of pensions, each with different death benefit options. Defined benefit pensions usually provide a spouse’s pension and sometimes a lump sum. Defined contribution pensions, including SIPPs and personal pensions, are more flexible—they can be passed on as lump sums or as ongoing pensions. The State Pension offers limited death benefits, mainly for spouses.

Inheritance Tax and Pensions

Most pension death benefits are not counted as part of your estate for IHT, which can be a significant advantage. If you die before age 75, benefits are usually paid tax-free to your beneficiaries. If you die after 75, your beneficiaries will pay income tax at their own rate on any withdrawals. It’s important to complete an expression of wish or nomination form, which, while not legally binding, guides the pension trustees in distributing your benefits.

Planning Strategies

To make sure your pension benefits go where you want, keep your nomination forms up to date and consider trust planning if your family situation is complex. Flexible drawdown options allow beneficiaries to access funds as needed, and annuity protection can guarantee minimum payment periods.

Key Considerations

• Keep beneficiary nominations current, especially after major life changes.

• Trustees have discretion over how benefits are paid, so clear instructions help.

• Be aware of the tax implications for your beneficiaries, especially if you die after age 75.

Pension death benefits can be a powerful part of your estate plan, but proper nomination and regular reviews are essential to ensure your wishes are followed and your loved ones are protected.

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